Germany's Inner Struggle Stifles EU Action

The leaders of Europe have been criticized for their inability to deal expeditiously
with the Eurozone debt crisis. Many view the paralysis through the prism of
self interest: taxpayers of the EU's creditor nations are simply unwilling
to finance spending of the bloc's debtors. But the hesitancy can also be ascribed
to the growing voter dissatisfaction with the entire structure of the Eurozone,
and in particular a chasm between German voters and German leaders.

Following the devastation of two world wars, the European Union was conceived
as a super state that would prevent traditional nationalistic tensions from
destabilizing the Continent. German and French cooperation was at the heart
of negotiations and was the primary factor that led to the establishment of
the Union. But the two countries had somewhat different goals.

Germany, knowing that its future lay with its proven economic prowess wanted
to ensure captive markets. France, overtaken twice by a belligerent Germany
in the previous century, sought permanent peace. Knowing that voter aversion
ran deep, French and German leaders determined to build and expand the EU by
stealth if necessary.

Indeed, Frenchman Jean Monnet, one of the architects of the EU reportedly
said "Europe's nations should be guided towards the super state without their
people understanding what is happening. This can be accomplished by successive
steps, each disguised as having an economic purpose, but which will inevitably
and irreversibly lead to political union."

Initially, the loss of sovereignty was acceptable to the southern democracies
struggling with uncertain economies, Portugal, Italy, Greece and Spain (later
to become known as the PIGS), which benefited from massive EU funding. In the
main contributing nations, notably Germany and Great Britain, voters showed
greater hesitancy. In France, Denmark and Ireland, which initially voted against
political union in referenda, means were found to ignore voters' wishes. To
overcome northern objections, the union was touted as a free trade area that
would benefit productive economies.

Over decades, periods of economic stress always provided proponents of greater
centralization with a means to advance their agenda. Greater union was the
cure all for economic ills. The establishment of the common currency in the
late 1990's was seen as the lynchpin in making the Union permanent.

But the euro itself was fatally flawed from the start. Despite the lack of
fiscal unity needed to underpin a single currency, European leaders took the
plunge and trusted that all would work out in the end. Their gamble is now
proving costly.

Today, with pro-union hierarchies in firm control of the political class in
France and Germany, and with career politicians susceptible to party coercion,
national parliaments are becoming less and less representative of popular will.
In any event these national bodies have already ceded some sovereignty to the
EU, with some 70 percent of legislation estimated to come from non-elected
officials in Brussels. But the European Parliament itself is virtually powerless
in setting policy. The net result is unaccountable government. The Federal
Constitutional Court of Germany cited this "democratic deficiency" two years
ago.

The hardships of the current recession and debt crisis have fanned voter apprehension.
There can be no doubt that street level discomfort with the super state is
growing in Berlin, London, Paris, and Rotterdam. Conscious of these issues,
northern tier Euro zone politicians are now loathe to antagonize voters already
frustrated with the political status quo.

However, Germany's political elite may be seeing the crisis as a singular
opportunity to gain greater control of the countries that are on the receiving
end of its bailout funds. Currently, Germany's formal executive power throughout
the EU is far lower than its bailout contributions would suggest. Berlin is
actively looking to change this. If they are successful we may look back on
the establishment of the euro as the means by which Germany finally acquired
the empire sought by Bismarck. German voters, not sharing these dreams, may
be less willing to pay the price with their hard earned savings. As a result,
German leadership is currently rudderless. Bereft of direction from its most
important member, the EU itself drifts.

But let there be no uncertainty on one point: Either Germany gains control
of the crisis and creates a German led super state, or the experiment with
European integration very well may have run its course.

John Browne is a former member of the UK Parliament and a
current senior market strategist for Euro Pacific Capital.

John Browne is the Senior Economic Consultant for Euro Pacific
Capital, Inc. Mr. Brown is a distinguished former member of Britain's Parliament
who served on the Treasury Select Committee, as Chairman of the Conservative
Small Business Committee, and as a close associate of then-Prime Minister Margaret
Thatcher. Among his many notable assignments, John served as a principal advisor
to Mrs. Thatcher's government on issues related to the Soviet Union, and was
the first to convince Thatcher of the growing stature of then Agriculture Minister
Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously
pronounced that Gorbachev was a man the West "could do business with." A graduate
of the Royal Military Academy Sandhurst, Britain's version of West Point and
retired British army major, John served as a pilot, parachutist, and communications
specialist in the elite Grenadiers of the Royal Guard.

In addition to careers in British politics and the military,
John has a significant background, spanning some 37 years, in finance and business.
After graduating from the Harvard Business School, John joined the New York
firm of Morgan Stanley & Co as an investment banker. He has also worked
with such firms as Barclays Bank and Citigroup. During his career he has served
on the boards of numerous banks and international corporations, with a special
interest in venture capital. He is a frequent guest on CNBC's Kudlow & Co.
and the former editor of NewsMax Media's Financial Intelligence Report and
Moneynews.com. He holds FINRA series 7 & 63 licenses.